(Bloomberg News) The dollar fell the most in almost two weeks against the euro amid speculation damage from Atlantic Ocean tropical cyclone Sandy will be less severe than earlier anticipated, damping demand for safer assets.

The U.S. currency dropped against all its 16 major counterparts as European shares and U.S. stock futures rallied. The euro strengthened after a Spanish report showed the economy contracted less in the third quarter than the central bank estimated last week. The yen rose against the dollar as the Bank of Japan added less monetary stimulus at a policy meeting than some economists predicted. The pound advanced as U.K. retail sales increased.

"It was a case of pricing in the worst and we don't seem to have seen the extremes of what could have occurred in the last 24 hours, so markets have just taken a little bit of that negativity off the table," said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. "The euro is bucking the trend from the fundamental factors because of the risk environment."

The dollar weakened 0.6 percent to $1.2982 per euro at 11:15 a.m. in New York, the most since Oct. 17. The U.S. currency declined 0.3 percent to 79.57 yen after falling to 79.28 yen, the least since Oct. 22. The euro advanced 0.3 percent to 103.26 yen.

Cyclone Sandy came ashore in southern New Jersey at 8 p.m. New York time yesterday and drove floodwaters to life- threatening levels in a region with 60 million residents. U.S. equity markets will be shut for a second day today. The Securities Industry and Financial Markets Association said bond trading would be suspended.

Storm 'Diminishing'

"Now she's overland, she's lost her power source and is diminishing in strength," Dan Williams, an Exeter, U.K.-based spokesman for the Met Office, said today by telephone.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, fell 0.5 percent to 79.85. The Stoxx Europe 600 Index of shares rose 0.7 percent, and Standard & Poor's 500 Index futures climbed 0.3 percent from the Oct. 26 close.

The euro appreciated against most of its major peers as Spain's National Statistics Institute said gross domestic product declined 0.3 percent in the three months through September. That compared with the Bank of Spain's estimate on Oct. 23 of a 0.4 percent contraction.

'Minimum Expansion'

The yen rose to a one-week high against the dollar after the BOJ expanded its asset-purchase program by 11 trillion yen to 66 trillion yen at a policy meeting in Tokyo.

Fifteen economists forecast the BOJ to add 10 trillion yen to its 55 trillion yen program that buys assets such as government bonds, real estate investment trusts and stock funds, according to a Bloomberg News survey. Four saw it increasing purchases by as much as 20 trillion yen.

"The 10 trillion-yen increase was seen as a minimum expansion, and the failure to reach 15 trillion yen is very disappointing for markets," said Yunosuke Ikeda, head of Japan foreign-exchange research at Nomura Securities Co. in Tokyo.

The pound rose for the first time in three days against the dollar after a report showed an index of U.K. retail sales climbed to a four-month high in October, damping speculation the Bank of England will boost monetary stimulus.

The data followed a report last week showing Britain's GDP expanded 1 percent in the third quarter, as the nation emerged from a double-dip recession.

'Strong Enough'

"The GDP number was strong enough to rule out further monetary stimulus at the November BOE meeting and some of that is in the price for sterling already," said Valentin Marinov, head of European Group-of-10 foreign-exchange strategy at Citigroup Inc. in London. "More resilience from upcoming U.K. data releases would help sterling consolidate."

The pound gained 0.3 percent to $1.6076 after falling to $1.5914 on Oct. 23, the weakest level since Sept. 6.

Norway's krone rose for a third day against the dollar before the central bank holds a policy meeting tomorrow. The Norges Bank will keep its key rate at 1.5 percent, according to all 14 economists in a Bloomberg survey.

The krone has strengthened 3.2 percent in the past three months, the second-best performer after the euro of the 10 developed-nation currencies tracked by Bloomberg Correlation- Weighted Indexes.

"Should the Norges Bank release a more dovish report, pushing hikes back further we could see investors cut longs," Josh O'Byrne, a strategist at Citigroup Global Markets Ltd. in London, wrote in a note to clients, referring to orders to buy the currency. "Absent a significant shift in monetary policy we still expect the krone to perform over coming months."

The krone rose 0.6 percent to 5.737 per dollar and gained 0.1 percent to 7.440 per euro.